If you wanted to make a career in a sport would you just watch that sport on television and hope to be a world beater? No, I guess.

Similarly if you want to be a good investor watching television or the pink papers or the personal finance magazines and websites may be not the best way to prepare!

What do you really need to do to lead a simple, healthy life? Eat simple food (which your body knows), keep regular habits, get some exercise, get adequate sleep – these simple things should help you in your quest for a good healthy life.

It is exactly same for your investments – keep it simple (do not invest in asset classes you do not understand), invest regularly in mutual funds (for your short term requirement i.e. less than 6-7 years) or unit linked plans (longer term requirements), keep some money in banks for an emergency, spend less than what you earn. Learning about equity, commodities, ‘real’ estate and debt markets is a must if you are serious about investing. Learning happens from books – classic well written books which have stood the test of time. It is very difficult to learn from magazines, television, etc. and there are valid reasons for the same.

The limitations that media has in ‘educating’ an amateur is multi-fold. Let us look at some of them:

Journalists are trained to be journalists, not financial analysts. To create wealth over long periods of time you need to do some simple things – like goal setting, creating a financial inventory, etc. whereas a journalist ends up giving ‘tips’ on which share to buy or which mutual fund to pick. For doing this he is aided by websites (nationally valuresearchonline.com and internationally Morningstar.com) which do a fantastic job of using the past data.

Unfortunately they come with a plug line ‘past is not an indicator of future performance’. Though of course for most of the investors and advisors what some of these funds say is the basis of creating ‘future’ portfolios, usually to the detriment of the ‘poor’ investor. In fact stories like “Ten best funds to invest TODAY” are great on the cover of a magazine but do precious little to ‘educate’ the real investor. Topics like asset allocation, risk analysis, compounding, indexing, etc. are surely not cover story material at all. That unfortunately is perhaps what the retail investor needs!

Media does not employ specialists – the person covering mutual funds covers banking, life insurance, car loans, and everything in personal finance. This person is completely out of breadth – from where will they find depth?

When an an expert speaks on television – it sounds more like weather prediction or astrology. The take away for the viewer is almost nothing. For example I have caught myself saying “Before you invest you should do a proper fundamental analysis of the company”. Take a worse statement “Frankly this share looks very weak fundamentally, but technically I do not know whether it is a good time to sell or some upside is still left”. This may be a perfectly accurate statement, but it is utterly useless for the common investor.

There is a huge conflict between what is good for the investor (not trader) and what the financial services industry wants him to do. Warren Buffet says ‘inaction’ for long periods of time is a sensible strategy to adopt. However the media can make you feel rotten for doing nothing. Programs are titled “Is it time to switch from Equity funds to Gold funds” – this is enough for the retail investor to start twitching his thumbs and call his ‘adviser’ who will help him churn. In a rising market – analysts, media and the end user of the information (for whom purportedly the information is being sought, analyzed and delivered) are all optimistic about the company prediction. It is exactly the opposite in a falling market. Does the media coverage of a single share create more volatility in ‘trading’ markets? I do not have enough evidence to speak for or against this.

One fantastic exercise a retail investor can do. Invest in a 200 page note book and see what each person coming to the channel (or writes) says. Make a summary and read it after 6 months. You might have a humor book on your hand. Maybe the publisher may pay you a nice round sum which you can use as a retirement plan.

If on television you hear me telling one viewer “you should reduce your exposure to Kotak K-30 and use the proceeds to invest in Franklin India Prima” and tell another viewer “you should sell your Franklin India Prima and invest in Kotak K-30” am I contradicting myself? No. One viewer may be shifting from large cap to mid-cap and the other shifting from mid cap to large cap schemes. Imagine the plight of a viewer, especially if he is making notes.

Normally in sectoral funds you should be buying it only when everybody is shunning it – which means when it is languishing at some low net asset value. Currently for example if everybody is pushing an infrastructure fund, maybe as an investor should be looking at a FMCG fund or a pharma fund! So the inherent conflict between advising, media and selling comes to the fore.

For a seasoned investor magazines and television come across as a series of advertisements – some obvious and some not so obvious. So to make out the difference between advice, and noise is significantly difficult if not impossible.

Most magazines (and channels) can rarely make out the difference between ‘traders’ and ‘investors’ – which means you will hear statements like – Investors will benefit by a reduction (or abolition) of securities trading tax. Frankly investors should not be worried about transaction costs at all – it is for the traders to worry about transaction costs. There can be many such examples to quote from.

Investment advice is very simple – but has to be delivered in a different way for each of the recipient. At times it has to be delivered like a teacher, sometimes like a friend, and sometimes like a child to a parent – and sometimes like a parent to a child. It is difficult for mass media to do this consistently and for a long period of time. At times the end user may not find it palatable, but deliver you must. Like a doctor giving bitter medicines to a patient or a mother mixing bitter medicines with honey so that it can be eaten.

In case of a magazine the editorial is clearly in a different location from the articles and the advertisement. In case of television unfortunately that distinction is impossible to make – in most times for the journos themselves! There is no website or magazine which ever checks the ideas given by ‘an expert’ after some time – say 4-6 weeks or on the happening of an event.

So if your teacher is the pink paper or a television channel, please have a plan B for retirement – it will be too late by the time you can correct!

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  1. Dr Mohammed Ali Khan

    I agree completely

    In my initial days I tried to watch the financial channels but got nowhere.. However they have one good use.. They give a sense about the mood of the markets.. If everybody is optimistic & gung-ho probably its time to sell and vice-versa

    What we really need are

    1. Books form good authors
    I would suggest
    a. Intelligent Investor &
    b. Security analysis by Benjamin Graham
    c. Buffetology by Mary Buffet ( One of the best Books about Warren Buffets investment style)
    d. Common stocks , uncommon profits by Philip Fisher
    e. Common Stocks as Long Term Investments by Edgar Lawrence Smith
    f.The Theory of Investment Value by John Burr williams
    g. One up the wall street by Peter Lynch
    and any other books by Ken Fisher, John Bogle and others…. Thats a lot of reading

    2. Sensible websites like Investopedia.com, Subramoney.com and others

    3. Annual reports of the companies one wishes to invest

    4. A basic knowledge about accounting ( Accounting for Dummies ) so that we can make sense of the annual reports

    I request Subra to give a list of books and financial gurus he would recommend.. That would be very helpful for novices like us

  2. go to search and search for ‘best books on investment – must read list’ the posting was done in March 2008 – as my students wanted it. Most of the books that you have mentioned is phaps there in my list too.

    You made my day by putting me with investopedia. also forbes, wsj, money.com, fool.com – are all great sites.

    However if you do not understand portfolio construction, you are better of with cheap index funds like etf. Also stop believing your brain which tells you ‘you are smart’. See your past mistakes, you will come down to earth. Keeping one’s ego is important even while investing 🙂

  3. Dr Mohammed Ali Khan

    Thanks Mr Subra for the link about the books..

    Putting your site along with Investopedia.com was not a compliment but statement of a fact..

    This is because most of the sites you mentioned are American and deal with the American investing environment…
    There are very few sites that deal with investing for the Indian investors ( Most are trading sites offering tips or telling about the day to day gyrations of the indices)

    I you know about any other Indian site which advice us about investing and not trading please let us know

    ( As for as investing in etf is concerned as an NRI icicidirect.com does not allow me..Im allowed to invest only in IPOs, Stocks in the secondary market and funds.)

  4. I was surprised that Nri investors are not allowed to invest in etf! Why not try SIP in some index fund? Templeton has an index fund with 1% amc..and hdfc has a sensex plus which normally out performs the market index?

  5. Dr Mohammed Ali Khan

    Dear Mukesh
    I do have the above said Index funds.. Its just that ETFs are cheaper.. NRIs are not allowed to invest in Gold ETFs either, which I think is the best way to invest in Gold.. Its a big loss for us, for we now have to go for physical gold.. which is a pain in the neck
    (The women though love it )

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